ADVERTORIAL
WE KNOW THAT INVESTING IN RELATIONSHIPS GETS THE BEST OUTCOME.
CURRENT GROWTH, INTEREST RATES AND EQUITIES
Quilter Cheviot’s Birmingham office covers a large area of the region. The team works with a wide variety of clients, including family trusts, pension schemes and intermediaries.
Here, Executive Director manager at Quilter Cheviot Birmingham office, David Jupp, discusses current growth and interest rates.
While the economic upturn in the US has been volatile, the UK continues to experience one of the sharpest turnarounds in Gross Domestic Product (GDP) growth in the Organisation for Economic Co-operation and Development (OECD). Low interest rates, the lingering benefit of quantitative easing and reduced drag from deleveraging have supported a broad-based recovery across consumer spending, business investment and housebuilding.
Consumer Price Index (CPI) inflation is low but stronger GDP growth and the rapid fall in unemployment could mean a financially prudent ‘independent’ Bank of England will raise interest rates before the year- end. If the current growth trajectory continues, a 2% rate in 2015 would not be unreasonable.
GDP is expanding steadily in Germany and has picked up strongly in Ireland – perhaps sufficiently for the public debt/ GDP ratio to fall for the first time in 7 years. However, the picture continues to be anaemic elsewhere in the Eurozone.
Unemployment is falling, particularly in the peripheral economies, but there is still enough slack in the labour force combined with the strength of the euro to exert downward pressure on Housing Capital Improvement Program (HCIP) inflation. The European Central Bank’s latest measures provided some reassurance but are unlikely to prevent inflation falling so some form of quantitative easing is still a possibility in H2.
With supportive financial conditions, accelerating growth and reasonable valuations, we continue to favour equities over fixed interest. In the short-term, the extended period of equity gains without a significant setback, high levels of investor complacency and low volatility have encouraged us to trim our equity exposure. However, fixed interest ‘bears’ may be disappointed by only a modest rise in yields as central banks successfully unwind Quantitative Easing (QE) and inflation remains subdued.
We expect the next phase of the equity cycle to be driven by evidence of improving profitability with the focus on good quality companies able to generate higher profits from sustained revenue growth rather than reducing costs. Fewer cost cutting opportunities, low debt costs and growing corporate management confidence mean merger and acquisition activity will also be a prominent feature. A 5% increase in 2014 earnings would give UK equities a prospective valuation of 14x with a dividend yield of 3.5% and provide scope for further positive returns.
Quilter Cheviot, one of the UK’s largest independently owned discretionary investment firms is based in twelve locations across the UK, Jersey and Ireland and has total funds under management of £15.7bn*.
*as at 30 June 2014
Investors should remember that the value of investments, and the income from them, can go down as well as up. Investors may not recover what they invest. Past performance is not a reliable indicator of future results.
SEE HOW WE’RE DOING THINGS DIFFERENTLY
CALL 0121 212 2120 OR VISIT
WWW.QUILTERCHEVIOT.COM
Quilter Cheviot Limited is registered in England with number 01923571. Quilter Cheviot Limited is a member of the London Stock Exchange and authorised and regulated by the UK Financial Conduct Authority.
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